Daily analysis 04.01.2018

04.01.2018 13:04|Marcin Lipka

Good data from both the US and the eurozone was published. The Fed’s message appeared to be more neutral than dovish. The zloty remained strong. The euro fell to its lowest levels since mid-2015 and the franc returned to its pre-Black Thursday value.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

  • 2:15 p.m.: December's ADP reading from the US labor market (estimate: 190k),
  • 2:30 p.m.: Weekly data on initial jobless claims in the USA (estimate: 240k).

Positive data from both the USA and the eurozone

Both the US and European economies published positive data. The ISM index presenting US industrial condition increased to 59.7 percent, which is 1.5% above estimates from analysts. In addition, the production subindex increased to 65.8 points and new orders were up to 69.4 points. In the case of the latter, this is the highest publication for 13 years and the third best reading in over 30 years.

The index for the eurozone did not remain far behind. In the case of industry, December expressed a record-breaking year in the history of overall data for the whole eurozone. Today, IHS Markit published readings for services in the single currency area. In addition, the average service index for the whole year was the highest since 2007 (industrially for two decades).

It should be noticed that the continuation of the strong new jobs creation in the service sector was visible in November and had the fastest growth of new orders for over a decade (the highest in 17 years). In the data commentary, head IHS Markit economist Chris Williamson, who prepared the report, pointed out that current readings suggest GDP growth in Q4 for the eurozone at 0.8 % in QOQ.

Generally, US and eurozone indices showed a strong increase in economic activity. It may be interesting that the GDPNow model of the Federal Reserve in Atlantic estimated the terms of the annualised GDP for the Q4 in the USA at 3.2%. This means a reading of 0.8% QOQ is exactly the same as IHS Markit estimates for the eurozone.

Fed more neutral than dovish

Apart from macro data, the publication of minutes from the Fed was an important event yesterday evening. It seems that the minutes were less dovish than expected after Janet Yellen's conference and the voices against the increase of interest rates that were expressed by two FOMC members.

Despite concerns appearing in central banker’s discussions regarding inflationary moves toward their target during the record reading, one could have the impression that they were approved by a relatively small part of Fed representatives. Part of the discussion also focused on the flattening treasury bonds yield curve, which is perceived by some economists as an announcement of the economic slowdown. However, this issue has not raised much concern in the vast majority of members.

During the discussion on the monetary policy in mid-December, some members assumed the forthcoming changes in the tax system. However, household tax cuts were the main discussion. At that time, CIT reduction was not a core scenario, therefore it can be concluded that to some extent, the growth perspective was underestimated.

Despite current issues, most Fed members clearly suggest the tightening (at a moderate pace) of the monetary policy. Therefore, it seems that the risk of an increased slowdown is limited for the time being. Moreover, it is not impossible that they could even accelerate if economic growth is much higher than the potential value due to the fiscal stimulus (this kind of scenario was also discussed). Despite the fact that the Fed's message should support the USD, the response on the dollar was very limited and short.

Strong zloty

The zloty remained strong and benefited from positive sentiment in the region (the forint or the Czech crown also appreciated). The EUR/PLN pair fell even below the 4.15 boundary in the morning, which is the lowest euro value for more two years. On the other hand, the dollar reached over three years lows and the franc, falling below the 3.45 PLN and 3.53 PLN level, respectively.

Interestingly, the Polish currency was not affected by lower than expected inflation from Poland and less dovish than the expected message from the Federal Reserve. Therefore, it can be noticed that very good global sentiment has been more important yet again in the case of zloty valuation (for other currencies of emerging markets, including those from Latin America and Asia as well) rather than the current macroeconomic readings. Taking into account, the current zloty trends should be maintained, i.e. the Polish currency will probably remain strong.


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This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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